The spector of bankruptcy fraud is one that causes concern for many people. This activity is a serious criminal offense that can have enormous consequences, both inside your bankruptcy case and in the criminal courts. If you are found guilty of bankruptcy fraud you could end up facing large fines or even be sent to prison.
The United States Bankruptcy Code includes federal regulations and laws, and if the trustee suspects fraud then this is taken very seriously and the court will investigate the matter. The bankruptcy trustee is legally obligated to disclose any suspected fraud to the bankruptcy judge, but the trustee must have sufficient proof that fraud is being attempted or committed before this step is taken.
The evidence that the trustee gathers if bankruptcy fraud is suspected will include the specific fraud being committed and the individuals who are involved in the criminal activity. The bankruptcy trustee or court may request that a Rule 2004 examination be performed. A Rule 2004 examination will include a review of all relevant aspects in the case and debtor situation.
The actions by the debtor, the assets, property, and liabilities in the case, and any other matters that are relevant to the debtor and bankruptcy case may be reviewed and examined closely when a Rule 2004 examination is requested. Another area that this type of review can examine is the ability of the debtor to obtain a bankruptcy discharge in the case, and even whether the debtor has any right to this type of discharge in the first place.
If the bankruptcy trustee has evidence of fraud then the trustee could file to have an adversary hearing held, and the court would review the evidence of fraud gathered by the bankruptcy trustee to determien whether fraud has been committed. The adversary hearing can result from debtor bankruptcy fraud or creditor bankruptcy fraud. During this type of proceeding the court could take any steps needed to recover property that was fraudulently transferred to a third party, and provide court orders that will be used to uncover any hidden assets or property that was never properly and fully disclosed.
An adversary hearing could also result in the debtor discharge in a case being revoked by the bankruptcy court, and this order is called a turnover order which turns over the previous discharge order issued by the court.
A temporary injunction may be issued by the bankruptcy court, and this type of order is used to prevent any immediate harm until the situation can be sorted out. This injunction may specify that certain assets or any assets owned may not be sold, given away, or transferred in any form to any other party. A temporary injunction will ensure that any property will still be available after the adversary hearing and can not be disposed of in any manner.
Bankruptcy fraud is such a serious crime that a number of federal agencies may become involved when this type of crime can be proven. The bankruptcy court may alert the FBI, the United States Attorney, and other federal, state, and local law enforcement agencies of the suspected fraudulent activity.
Bankruptcy fraud can include many types of criminal activity. Filing a false bankruptcy petition, concealing assets from the bankruptcy trustee and court, lying under oath or making a false oath, and embezzlement in many situations are all serious crimes that fall under the bankruptcy code and laws in the bankruptcy fraud category. Each of these crimes could mean 5 years in prison and some very hefty financial penalties.